More Executive Recruiting Shifts In-House

By

Joann S. Lublin

Updated Oct. 9, 2012 6:59 p.m. ET

Time Warner
Inc.
has filled thousands of senior spots during the past seven years—but used an executive-search firm only once. The reason? The media conglomerate prefers to use its own recruiters to find executives in more than 30 countries.

Time Warner is one of many U.S. companies that have slashed spending on outside recruiters and appointed a head of executive recruitment instead. The approach improves retention and saves time, companies say. The shift also reflects management's belief that internal recruiters are better equipped to find hires who fit a company's culture and keep attractive prospects in the pipeline.

ENLARGE

At least 25% of Fortune 500 companies now have such a role, up from about 10% a decade ago, industry watchers estimate.
Sears Holdings
Corp.
, Hilton Worldwide Inc. and
PepsiCo
Inc.
have all recently made the switch; their in-house teams typically consist of former outside recruiters well-versed in social media like LinkedIn.

Search firms, already hurting from the sluggish economy, are losing nearly $500 million a year in revenue to internal recruiters, with that figure doubling by 2017, according to
David Lord,
who advises businesses on using outside recruiters.

It also has intensified the heated competition among recruitment concerns, which are working harder to enlarge leadership-consulting services and expand abroad.

"It's not a substitute for what we do," says
Stephen Beard,
an executive vice president of
Heidrick & Struggles
International Inc. The company recently missed earnings expectations, posting a 19% drop in second-quarter revenue and blaming the result on economic uncertainty. Rival Korn/Ferry International has noticed some impact on search volume, "but not anything that we are concerned about," says
Joseph E. Griesedieck,
a vice chairman. Its earnings fell 32% in the fiscal first quarter ended July 31 amid the company's first revenue decline since 2009.

ENLARGE

Time Warner says it has saved more than $100 million in search-firm fees since a team led by Maggie Rubey Lynch, shown, launched in January 2003.
Philip Montgomery for The Wall Street Journal

At Time Warner, where Maggie Rubey Lynch leads internal recruiting operations world-wide, the company says it has saved more than $100 million in search-firm fees since her 30-person team launched in January 2003.

Virtually all searches are conducted in-house, and each recruiter handles nearly twice the usual workload of an outsider—10 to 15 placements at a time, versus six to eight, Ms. Lynch says. In-house hunts, ranging from vice president to chief financial officer, take about 100 days—far faster than the typical 170 days a search firm takes, she adds. Recently, company recruiters wooed European TV
executive Gerhard Zeiler
to run international operations at its Turner Broadcasting System unit this spring.

"Time Warner would have spent at least $500,000" on an external Turner search, estimates
Christopher W. Hunt,
co-editor in chief of Executive Search Review, an industry newsletter. Time Warner declined to comment on the figure.

Ms. Lynch notes that Time Warner has lost no one placed through her operation due to poor performance.

Flextronics International
Ltd.
, a Singapore-based contract manufacturer that employs more than 200,000 globally, has a two-man team that completed 28 U.S. executive hunts last year, saving about $2.5 million in search-firm fees in the process, says
Jeff Shiverdaker,
the firm's director of executive recruiting. He adds that he expects to save the company at least as much this year.

At
Campbell Soup
Co.
, the global talent acquisition department spent about $5 million in the fiscal year ended July 29. That's down from about $8.5 million in fiscal 2004, the last year it relied solely on outside recruiters for U.S. executive hunts, according to a spokesman for the food maker. The drop mainly "is due to lower executive search fees" and increased reliance on internal recruiters, he says. Seven Campbell recruiters landed 40 executives during fiscal 2011 and 2012, compared with eight U.S. spots filled through search firms, the spokesman adds.

Ann Marie Gulian,
who served as Campbell's vice president of global talent acquisition until this summer, says that in-house recruiters ensure spurned candidates remain on good terms with the company—a point she made to the Campbell board last year.

According to some measures, internally recruited executives fit in better. A 2009 study by
Lockheed Martin
Corp.
concluded such hires scored markedly better than others on "quality-of-hire" measures, such as attrition, diversity and selection as high-potential managers, says
Caroline McClure,
its former head of executive recruiting. She now runs Scoutrock LLC, a consulting firm for in-house recruiters. Lockheed Martin declined to comment.

Well-organized internal recruiters can handle between 80% and 90% of an employer's executive assignments, according to the Association of Executive Search Consultants.

But when it comes to hiring a CEO or the No. 2 executive, companies still call in recruiting firms, because such assignments tend to be confidential and require a far-reaching search. A search firm earns between $500,000 and $1 million to recruit a Fortune 500 CEO, consultant Mr. Lord estimates.

The same goes for thorny assignments below the highest level. For example, Time Warner retained Heidrick & Struggles to fill the top spot at its Time Inc. unit this January after the magazine publisher's prior CEO, hired via staff referral, lasted just six months.

PepsiCo, which has cut outside searches by 25% in the past two years, still uses search firms in important locales such as Russia and Brazil to access a wider pool of senior talent, says
Courtney Hagen,
the company's senior director of executive talent acquisition. PepsiCo created her role in 2010.

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